Oil futures settle lower, hit by demand concerns

Recession warning, upbeat U.S. data, Greek deal support in play

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SAN FRANCISCO (MarketWatch) — Crude-oil futures settled lower Tuesday, as a warning from the Organization for Economic Cooperation and Development about the potential for a global recession fed supply concerns, offsetting some support from a Greek debt deal and upbeat U.S. economic data.

Oil for January delivery
US:CLF3
fell 56 cents, or 0.6%, to settle at $87.18 a barrel on the New York Mercantile Exchange. Prices suffered a 54-cent loss on Monday.

OECD gives gloomy global forecast

(3:45)

In a remarkable report, the OECD warns of a global recession and says that the U.S. and euro zone need to resolve fiscal problems quickly.

Oil prices came under pressure after the OECD warned of a “hesitant and uneven recovery over the coming two years,” saying it expects global growth of 1.4% this year and next.

The OECD’s latest economic forecasts make “a bleak reading, but I think the minuscule size of the [oil] price correction suggests the revised macro numbers are really just confirming the fears that most people already had,” according to Matthew Parry, senior oil-market analyst at the Paris-based International Energy Agency.

The OECD also said that “the U.S. ‘fiscal cliff,’ if it materializes, could tip an already weak economy into recession, while failure to solve the euro-area crisis could lead to a major financial shock and global downturn.” The fiscal cliff refers to automatic U.S. spending cuts and tax hikes set to begin in January. See more OECD: Fiscal-cliff failure could trigger recession.

The OECD “became the latest organization to trim its growth forecasts for 2013, which overshadowed stronger-than-expected U.S. economic data and news of the long-term Greek debt deal overnight,” wrote Fawad Razaqzada, technical analyst at GFT Markets, in a note.

“With the Greek situation sorted for now, investors’ attention will inevitably return to the fiscal cliff issue in the U.S. and the prospects of weaker-than-expected economic growth in China.”

Late Tuesday afternoon, Senate Majority Leader Harry Reid said there has been “little progress” made in talks about resolving the fiscal cliff, but the White House denied there’s been a breakdown in budget talks. See: Little progress made in cliff talks: Sen. Reid.

Greek deal, U.S. data

The long-sought deal over Greece provided some support for oil Tuesday.

Euro-zone finance ministers, the European Central Bank and the International Monetary Fund reached an agreement to disburse the latest loan payment to Greece as it attempts to harness its debt levels to sustainable levels. See: Euro zone, IMF agree on Greek debt deal.

The deal “serves to increase risk appetite, which should attract investors to the oil market,” Commerzbank analysts wrote in a note.

In the United States, the Commerce Department reported that durable-goods orders were essentially flat in October, defying expectations for a decline. Also, orders for core capital goods excluding defense and transportation — an important barometer of broad U.S. business spending — rose 1.7% last month, the biggest increase since May. See: U.S. durable-goods orders flat in October.

Investors will also be turning their attention to data on U.S. petroleum inventories.

Late Tuesday, well after the Nymex floor trading session ended, the American Petroleum Institute reported that crude-oil supplies rose 2 million barrels for the week ended Nov. 23. The trade group released its report as usual, despite last week’s holiday.

The Energy Information Administration is scheduled to release its more closely watched data as usual at 10:30 a.m. Eastern on Wednesday.

Reuters

An oil worker in Sudan.

For the week ended Nov. 23, analysts polled by Platts expect an increase of 500,000 barrels in crude inventories, a rise of 1 million barrels in gasoline stockpiles and a decline of 150,000 barrels in distillate supplies.

“By all accounts we should see more crude coming back in on imports, but we can just erase those gains with higher runs,” said Carl Larry, president of Oil Outlooks. “We’re seeing more refinery operations come back online.”

In other energy futures on Tuesday, the front-month December contract for gasoline
US:RBZ2
closed up just over half a cent, or 0.2%, at $2.73 a gallon while December heating oil
US:HOZ2
settled at $3.01 a gallon, down nearly 4 cents, or 1.2%.

Natural-gas futures for delivery in December
US:NGZ12
added 4 cents, or 1.1%, to $3.77 per million British thermal units, after having slumped by 4.4% in Monday’s session.

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